Strategy for the Telecommunications, Media and Technology industries

Internet Trends 2018 – Highlights

The ‘Mary Meeker’ Internet Trends report is something I look forward to every year – Not just because of the interesting insights about the connected world but also just the sheer volume of powerpoint used to show these insights. This year’s report is 296 pages long, down from 350 pages in the previous year, but still presents a bit of challenge to distill all the insights. Luckily, I have done this for you in this post where I tease out the most interesting highlights from the report. That said, if you have a spare 2 hours, I suggest taking the time to read through the full presentation.

This may not be a surprise to anyone. As smartphone penetration reaches saturation in mature and now developing markets, shipments of new devices are in decline. Globally, ~1.4Bn smartphones are shipped per annum which has been the case for the last 2 years. The majority of these are still Android devices with iOS making up the balance. Interestingly, ‘other’ operating systems (e.g. Windows etc.) have declined to near obscurity in the last year. Outside of saturation, another big driver of the decrease in shipments is elongating replacement cycles (2-3 years). If this continues I suspect we will see negative growth in the next year, possibly in double digits.

Internet user growth has also slowed to about 7% in 2016, down from 12% in 2016 (pp.7-8)

Global internet users of 3.6 billion surpassed half the world’s population in 2018. With penetration reaching this level it is likely that double digit growth will be hard to find. The report also outlined the growth in Wifi – There are around 450 million wifi networks in the world, up from about 100 million five years ago. Cheaper devices and new access points should help Internet user growth, but this likely to be gradual over the course of the next decade.

Internet growth is slowing but usage is increasing with the average adult spending about 6 hours per day with a digital device (pp.11)

This is a trend that we have addressed in our Mobile Consumer Survey and TMT Prediction reports. The average smartphone user looks at their device over 50 times a day which may seem a lot, however our smartphones have become the ‘swiss army knife’ of the digital age taking in functionality previously reserved for other devices (e.g. TV, iPod, Calculator, Watch, Heart Rate Monitor, Measuring Tape etc.). Usage is likely to grow with the increasing ‘usefulness’ of digital devices in all aspects of our lives. Combining the slowing growth in internet take up and the increase in internet usage across devices, internet organisations will be battling more for user time on their service vs new users in the coming years to continue to achieve high growth rates.

There are more than 30 million Amazon Echo devices in users’ homes, up from about 10 million at the end of 2016 (p.26)

Voice-controlled products are taking off (e.g. Amazon Echo). The Echo’s install base in the U.S. grew from 20M in the third quarter of 2017 to more than 30M in the fourth quarter. This is combined with the number of ‘skills’ an Echo can now perform being close to 30K which has almost doubleed in a year. Unfortunately the report did not give a clear indication of who is winning the battle for the home but there are estimates that the global install base for all home devices will be ~60M by end of 2018.

Roughly 13% of all retail sales come from e-commerce, up from about 5% a decade ago (pp.44-47)

I was initially surprised by this figure having worked with organisations who generate over 25-30% of sales online. However, it does speak to the disruption of physical channel and call centre sales which has had a relatively ‘long fuse’ in the era of digital disruption. It is also localised with the US perhaps trailing behind other parts of the world in this trend. The report outlines that E-commerce sales growth is continuing to accelerate – growing 16 percent in the U.S. in 2017, up from 14 percent in 2016. Amazon is taking a bigger share of those sales at 28 percent last year and on the other hand physical retail sales are on the decline. In the section on China, Digital sales are ~20% which speaks to growth of services like Tencent and WeChat providing integrated e-commerce experiences.

Tech’s influence on the world and the share of wealth is ever increasing with Tech companies rising to 25% of the market cap of the MSCI (pp.39-42)

There is a really interesting section in the report on the comparison of tech companies to other listed companies. One indicator of tech’s influence is that tech companies account for six of the top fifteen R&D and Capex spenders in the U.S with Amazon, Google Alphabet, Intel, Apple and Microsoft in the top five slots. These companies, including Facebook, are the fastest growing spenders on that list. At an industry level, tech companies versus other industries (e.g. health, industrial products) in the United States, tech companies are the largest and fastest growing R&D and Capex spenders – this is not a bubble.

The speed of technological disruption is accelerating – For example: Adoption of consumer internet took ~10 years, the dishwasher took 80 years (pp.142-165)

The report looks at tech’s influence on the US economy and jobs. There are some excellent charts showing the adoption cycles of different household goods and the speed of adoption for each decreasing over time. There is also some interesting analysis of the affect of tech on the type of jobs people have. One chart shows the decline in ‘locomotive’ jobs at the same time as the growth in airline jobs (p.149).What I gathered from this section is that in this age we should expect that jobs will shift from structured full time ‘9-5’ arrangements to more on-demand and internet-centric work – there are about ~6M on demand works in the US which is up ~23% YoY (p.165).

China is now home to nine of the world’s 20 biggest internet companies by market cap while the U.S. has 11. If you go back 5 years, China only had two and the U.S. had nine. There are some major trends supporting Chinese tech growth which are called out in the report:

E-commerce sales as a percent of total sales, at 20%, highest in the world and the fastest growing

Mobile internet users are now 753M (8% growth) and data usage is accelerating, 162% versus 124% in the previous year

Mobile video entertainment time is now 22% of all time spent online up from 13% in 2016 with short form video experiencing the most growth compared to long form and gaming

Mobile payment volumes are accelerating up 207% YoY vs 116% in the prior year led by Alipay and WeChat

On demand transport (car and bike) is up 96%

The annual Internet Trends report is a rich library of interesting statistics about how our world is changing with the adoption of the internet and new technologies. The items covered above are the highlights I took from the 296 pages (I’ve left out a few sections including the ones on data privacy and big data/AI) but I encourage you to flick through the sections for a more detailed understanding of the trends covered in the report. Until next year!